France's Solar Bubble Pops

January 27, 2011

Two years ago, the French National Assembly adopted a solar "feed-in tariff" -- a misnomer for a mandate that forces utilities to buy expensive renewable electricity at ridiculously high prices. The legislature set the price at 546 euro ($745) per megawatt-hour, almost ten times the market price of 55 euro ($75) that customers pay for electricity from other sources. Electricitie de France (EDF), the national utility, was obligated to buy from all comers, covering the costs with a special levy on other customers, says the National Review Online.

The result was an avalanche of expensive rooftop projects.

Whereas EDF had received only 7,100 applications a year for such connections before 2008, by last December it was fielding 3,000 per day.

Now costing 1 billion euro ($1.4 billion) per year, the program does not expire until 2017 and has put the utility in trouble, says the National Review.

EDF's stock declined 20 percent last year, compared to only a 3.7 percent decline for the rest of Europe's Stoxx 600 Utilities Index.

The utility is now 57 billion euro ($78 billion) in debt, and plans to upgrade its aging fleet of 53 nuclear reactors -- which provide 75 percent of France's electricity -- have been thrown into doubt.

The utility has been forced to raise the renewables levy on other customers from 4.50 euro ($6) to 7.50 euro ($10) per megawatt-hour, but financial analysts say they will have to pay up to 12.90 euro ($18) -- almost 25 percent above the market price -- for EDF to break even.